Hard vs. Soft Credit Checks
You know the importance of keeping your credit report blemish-free and having a high credit score. If you've down your research, you probably already know to pay your bills on time, keep multiple credit accounts in good standing open, and to be wary of too many credit inquiries because they will kill your credit. Or will they? One of the biggest myths in the credit-help world is that credit inquiries automatically kill your credit report; of course, as with every myth, there is some truth and some embellishment to this statement.
A credit inquiry (also referred to as a credit check or credit pull) is when a party that is not a credit bureau requests a copy of your credit report for review. Too many hard credit inquiries can indicate to lenders that you are desperate to borrow funds and they will see you as a credit risk. Wait, a “hard” credit check? There is more than one overall type of credit inquiry? Indeed, there are two types: hard and soft.
Hard credit inquiries are ones you initiate yourself for large loans or new lines of credit. The most common types are new cell phone accounts, new credit cards (including department store cards) and home and auto loans, although some banks perform one of these credit pulls before you can open a bank account. When you apply for a bunch of these types of credit in a short period of time, the credit bureaus are legally obligated to post this on your credit report. If a potential creditor sees that you have been on an applying spree, this may give them pause as you could be seen as someone in desperate need of credit with no intent to repay, and you may be denied.
What about when you request a copy of your own report or apply for a job that issues a credit check? Will this go on that list of inquiries that can make you look like a credit-hungry monster? Thankfully, no. These types of credit checks, along with certain bank identification pulls and pre-approved credit card offers you receive, are called soft inquiries and are not available for lenders to check up on, only for your benefit. These types of inquiries will not affect your score in any way, though you will get a hard check if you sign up for one of the pre-approved cards.
There may be a situation where you need to shop around for the best car or mortgage deals, and you can rack up a horrifying number of hard inquiries that way; however, FICO (the Fair Isaac Corporation, also known as the company that created the credit scoring model by which you are judged) is willing to forgive this type of inquiry, to a certain extent. If you have multiple inquiries for auto or mortgage loans within a fourteen-day period, the FICO algorithms will recognize it as only one inquiry.
Be cautious when applying for new credit lines and be especially careful when you want to apply for more than one at a time. Don't be fooled by department store discount offers or pre-approved cards if you aren't interested in using that credit line for years to come. Your credit history is a reflection of you to creditors, so don't sabotage your success.
- Understanding Credit:
